Economy

Evaluation: Egypt shouldn’t be out of the woods after the IMF bailout deal

  • The Egyptian pound trades at an 8% low cost on the black market
  • October $3 bln IMF deal helps increase bond costs
  • Up to now there was little demand for treasury or FDI, analysts mentioned
  • Egypt should repay $33.9 billion in international debt by mid-2025

CAIRO/LONDON, Nov 25 (Reuters) – Egypt’s funds stay precarious regardless of two main foreign money devaluations this yr and a $3 billion Worldwide Financial Fund rescue package deal, economists mentioned.

With debt curiosity funds set to soak up greater than 40% of presidency income subsequent yr and international foreign money shortages nonetheless weighing on the financial system, traders stay cautious regardless of the post-IMF sentiment surge.

Bankers in north Africa’s largest financial system indicated that the Egyptian pound’s black market fee of 26-26.5 per greenback was nonetheless 8% under the official fee of 24.53 regardless of an total devaluation of 36% this yr.

Overseas trade merchants, in the meantime, seem assured it will likely be 28 in opposition to the greenback this time subsequent yr and Japanese financial institution Nomura has simply put Egypt on an inventory of nations at excessive danger of a foreign money disaster. learn once more

“The Egyptian pound is prone to stay below stress till extra US greenback inflows from the GCC (Gulf nations) and dedicated international direct funding materialize,” mentioned Carla Slim at Commonplace Chartered Financial institution.

Final month’s IMF deal has supplied a while.

Egypt’s soon-to-pay authorities bonds have risen about 15% and the premium demanded by traders to carry them as an alternative of US Treasuries has shrunk by practically a 3rd. , (.JPMEGDEGYR)

Bonds due in one other 15-20 years have additionally risen sharply, though at 65-70 cents on the greenback and a 3rd under their face worth, analysts say they nonetheless current a hazard. ,

“Egypt has a excessive debt burden and is arguably extra susceptible even than Pakistan when it comes to debt service as a share of earnings,” mentioned Renaissance Capital chief economist Charlie Robertson.

“However the distinction is, it has been proactive and fast to go to the IMF,” Robertson added, noting that Egypt additionally had robust help from the rich Gulf states.

Egypt’s debt downside

The sale of Egypt’s short-term treasury payments to foreigners – the federal government’s fundamental supply of finance till the Ukraine disaster – additionally remained comparatively unchanged at about 4-6 billion Egyptian kilos ($163-244 million), two financial institution officers in Egypt mentioned on situation of anonymity. posted. This story is estimated.

That is partly as a result of authorities’s reluctance to boost rates of interest — or yields — on payments above the speed of inflation, particularly when one other sharp foreign money devaluation is being assessed.

BOTTLE

Egypt’s swelling present account deficit and $33.9 billion in worldwide debt funds due over three years to mid-2025 depart Egypt susceptible, scores company Fitch mentioned this month because it warned of a downgrade on the nation’s credit standing.

Solely Sri Lanka defaulted and Ghana defaulted on spending greater than the 41% of Egypt’s authorities income predicted to be spent on curiosity funds on its debt subsequent yr.

Reuters graphic

With a really restricted quantity of {dollars} and different international trade out there in Egypt, importers proceed to have bother financing items from overseas, creating bottlenecks for factories and retailers, bankers mentioned.

Farouk Soussa, an economist at Goldman Sachs, mentioned pent-up company demand for international trade and tight liquidity within the system would proceed to push the pound weaker if it was allowed to commerce freely.

“Fundamental valuation fashions recommend the pound is undervalued by 10% in the mean time,” mentioned Soussa, whereas James Swanston of Capital Economics mentioned the pound might should weaken to at the least 25 to the greenback to account for inflation differentials with key buying and selling companion Egypt.

Egypt’s IMF negotiations dragged on for seven months and prompted its second main devaluation of the yr. The central financial institution continues to permit the pound to weaken incrementally by 0.01 or 0.02 kilos every buying and selling day.

Many Egyptians on the road see the foreign money’s power as a gauge of how properly the financial system is being managed, and because of this the federal government has lengthy been reluctant to permit it to weaken shortly, analysts say.

Authorities additionally worry a totally free-floating foreign money might go overboard, prompting companies to boost their costs and gas inflation that’s already at a four-year excessive.

“Costs have gone up after the flotation, and the federal government has performed nothing to regulate it,” mentioned Reham Mohamed, a 38-year-old freelance translator who lives along with her mom in Cairo and is struggling to seek out work. “They’re growing daily.”

Extra reporting by Karin Strohecker and Mahmoud Salama; enhancing by Aidan Lewis and Christina Fincher

Our Requirements: Thomson Reuters Belief Ideas.

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